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To tighten grip on black money, Centre likely to introduce more provisions in cash holding limit norms in Budget 2020-21

New Delhi: Last month's three cash seizures by the Income Tax Department in Maharashtra, Tamil Nadu and Karnataka amounting hundreds of crores rupees have triggered a fresh deliberation in the Finance Ministry to introduce certain provisions in the existing law to limit cash holding to counter black money.

Top sources said the government is mulling stringent measures which could be announced during the Budget next year to cap the cash holding limit at home or in lockers. In 2017, the government had announced a cap on cash transactions up to Rs 3 lakh which was further reduced to Rs 2 lakh to promote digital economy.

However, according to the Reserve Bank of India (RBI), the currency circulation in March 2019 remained high with Rs 21.10 lakh crore. Firstpost reviewed a government draft on the matter which suggests that unaccounted cash by unscrupulous elements is held in private lockers and also stashed in other safe places, revealed recent search and seizures by the Income Tax (I-T) Department.

It further said in order to control the circulation of unaccounted money, restriction on cash holding is required. Through certain provisions for cash holding limit, illegal transactions like payments for drugs, narcotics deals, corruption and satta market could be controlled to a large extent.

"Even after demonetisation of Rs 500 and Rs 1,000 currency notes, cash holding by those dealing in unaccounted money transactions remains high and it is easy for a person to hold black money in Rs 2, 000 denomination," the draft note said.

The government note further suggested that in order to control the unaccounted cash or black money, there should be a limit on the cash holding, may be Rs 20 lakh, Rs 50 lakh or Rs 1 crore, with a specific provision that the amount found beyond the limit will be seized by the government.

Citing the reason for such a measure, the note said the I-T Department's seizures last year and the current year clearly indicated that in all the cases, the amounts were above Rs 2 crore and they were unaccounted money. A senior official said a similar discussion ensued in 2018 at the Department of Economic Affairs under the Finance Ministry but it couldn't reach a conclusion whether the limit for cash kept at home or lockers should be Rs 10 or Rs 15 lakh.

"Why a common man in the present-day society would keep Rs 2-5 crore in cash at their residence or private lockers. It raises suspicion that such amount is unaccounted like the case in Delhi where the I-T Department seized more than Rs 60 crore from a private vault. During the investigation, it came to light that some builders were operating the lockers and the huge amount of cash aimed to evade tax and to invest in benami properties. It was a clear case of money laundering. There has to be a strict rule indicating that cash beyond the prescribed limit will be confiscated," the official said.

The Finance Ministry without putting a cap on cash holding in 2016 had observed that it was absolutely necessary to have reasonable restrictions in holding the cash and to fix the limit of cash holdings since the end number of persons are holding cash of lakhs of rupees and such holding is undoubtedly unaccounted.

The provisions being deliberated also pointed out that new measures will be friendly for honest taxpayers and in case they are holding cash beyond the prescribed limit for open transactions, the same could be shared with concerned tax commissioner.

"The purpose is to control the rise in the unaccounted money transaction and further counter the illegal activities as well as the creation of black money in the financial system. The I-T Department's investigation shows rampant transportation of cash from one source to another without any hindrance. Specific provisions to limit cash holding will prevent illegal functions and circulation of black money," the government note said.

Also See: Three years of demonetisation: Core problems note ban sought to address remain; pain outweighs gains

Gold amnesty scheme: No proposal under consideration of the Income Tax Department, says govt sources

Demonetisation three years on: Were objectives of Narendra Modi's big economic move achieved? Jury is still out

Read more on Business by Firstpost.